3 Internal environment

Teknillinen korkeakoulu

Tietoliikenteen ja multimedian laboratorio

Tik-109.501 Telealan liiketoiminnan tutkimusseminaari I

14.11.2000

B-to-B Case: Iobox

Petrus Koskinen

Kari Rouhola

48598T

50461U


14.11.2000

1 INTRODUCTION ..................................................................................................................................................... 1

2 COMPANY ................................................................................................................................................................ 1

2.1

I OBOX HISTORY ................................................................................................................................................... 1

2.2

T ERRA M OBILE ................................................................................................................................................... 2

2.3

B USINESS IDEA .................................................................................................................................................... 2

2.4

O PERATIONS (L OCATIONS ) ................................................................................................................................. 3

2.5

C ORE COMPETENCIES .......................................................................................................................................... 3

2.5.1

Technology .................................................................................................................................................... 3

2.5.2

Understanding of business plans ................................................................................................................... 3

2.5.3

Managing....................................................................................................................................................... 3

3 INTERNAL ENVIRONMENT................................................................................................................................. 4

3.1

P ERSONNEL ......................................................................................................................................................... 4

3.2

O RGANIZATION ................................................................................................................................................... 4

3.3

F INANCE ............................................................................................................................................................. 4

3.4

P ROFITABILITY .................................................................................................................................................... 5

3.5

R EPUTATION ....................................................................................................................................................... 5

3.6

I NNOVATIVENESS ................................................................................................................................................ 5

3.7

R ESEARCH AND D EVELOPMENT .......................................................................................................................... 6

4 EXTERNAL ENVIRONMENT ............................................................................................................................... 6

4.1

G ENERAL ENVIRONMENT .................................................................................................................................... 6

4.1.1

Demographic Segment ................................................................................................................................... 6

4.1.2

Economic Segment ......................................................................................................................................... 6

4.1.3

Political/Legal Segment ................................................................................................................................. 6

4.1.4

Socio/Cultural Segment ................................................................................................................................. 7

4.1.5

Technological Segment .................................................................................................................................. 7

4.2

I NDUSTRY ENVIRONMENT ................................................................................................................................... 7

4.3

C OMPETITORS ..................................................................................................................................................... 8

4.3.1

Red Message .................................................................................................................................................. 8

4.3.2

Myalert .......................................................................................................................................................... 9

4.3.3

Akumiitti ........................................................................................................................................................ 9

4.3.4

2ndhead ....................................................................................................................................................... 10

4.3.5

Sonera ZED ................................................................................................................................................. 10

4.4

C OMPETITOR CONCLUSION CHART .................................................................................................................... 11

4.5

C OMPETITOR CONCLUSION ................................................................................................................................ 11

5 SERVICES AND CUSTOMERS ............................................................................................................................ 12

5.1

M OBILE M ESSAGING ......................................................................................................................................... 12

5.2

M OBILE FUN ...................................................................................................................................................... 12

5.3

M OBILE MANAGER ............................................................................................................................................ 13

5.4

M OBILE NEWS ................................................................................................................................................... 13

5.5

M COMMERCE .................................................................................................................................................... 13

5.6

C USTOMERS ...................................................................................................................................................... 14

6 VALUE CHAIN ....................................................................................................................................................... 15

7 DELIVERY CHANNELS ....................................................................................................................................... 16

8 EARNING LOGIC .................................................................................................................................................. 16

9 ANALYSIS ............................................................................................................................................................... 16

9.1

SWOT .............................................................................................................................................................. 16

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Koskinen, Rouhola


14.11.2000

10 SCENARIO PLANNING ........................................................................................................................................ 20

10.1

S CENARIO BUILDING ......................................................................................................................................... 20

10.2

S CENARIO SELECTION ....................................................................................................................................... 20

11 RECOMMENDATIONS FOR ACTION .............................................................................................................. 21

11.1

C USTOMER LOCK IN .......................................................................................................................................... 21

11.2

I MPROVE EARNING LOGIC ................................................................................................................................. 21

11.3

D ON

’

T FORGET S CANDINAVIA .......................................................................................................................... 21

11.4

R EAL CHALLENGE IS TO KEEP THEIR POSITION .................................................................................................. 22

12 CONCLUSION ........................................................................................................................................................ 22

Summary

Authors: Petrus Koskinen, Kari Rouhola

Title

Date:

B-to-B Case: Iobox

12.11.2000 Pages: 25

In this study we have researched company called Iobox, which is a Finnish wireless application service provider. It was founded in 1999. In the age of just 19 months it was acquired by Terra mobile. The deal has great impacts on Iobox' future. Our opinion is that if Iobox is able to keep its position in the new company it has a great possibility to become a truly global player in the wireless world. Terra Mobile is a good partner for it.

Key words: Mobile Internet, B-to-B, Mobile Entertainment



Koskinen, Rouhola

TU 91.109 Markkinatutkimusseminaari

21.2.2000

1 Introduction

This study is conducted for the Helsinki University of Technology Tik-109.501 Telealan liiketoiminnan tutkimusseminaari I, course was held fall term 2000. Goals of the study are; analyze

Iobox current business environment, find out possibilities and threads and finally give recommendations for future action.

2 Company

Iobox is wireless application service provider (WASP), which means a company that produces different kind of applications for mobile phones and other wireless terminal equipment. Until recently Iobox has been operating in both business-to-consumer and business-to-business areas. The

Terra Mobile, deal explained in the next chapter, has changed Iobox’ focus mainly to btoc area.

Iobox’ slogan is “we bring the Internet to your mobile”, which describes the target of the company: to create services which are provided in Internet also to mobile phones. They were the first operatorindependent service provider in the market and their faith in mobile phone services is strong. Iobox is trying to create pan-European brand, which provides strongly localized services to each country.

Iobox has presence in Sweden, Germany, Spain, UK and Finland. They service offering includes ringing tones, icons, e-mail to mobile phone, WAP portal and text message news to mobile phone. In

July 2000 Iobox had 1,6 million registered users (in UK, Finland, Sweden and Germany) and number is growing by 7000 every day.

2.1 Iobox history

Iobox was founded in January 1999. Original founders were Jari Ovaskainen and Henry Nilert. Jari

Ovaskainen worked in the USA for Andersen Consulting before returning to Finland. He sold his car and used all his savings (total of $120 000) to start Iobox. Henry Nilert is former investment banker.

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Koskinen, Rouhola 1


21.2.2000

He worked for Credit Suisse First Boston in New York. Nilert is a Swede who was born in New

York but has been raised in France. Since the founding of company Iobox has been growing rapidly.

Helsinki office was opened in February 1999 followed by London office November 2000. First the company had two headquarters (in London and in Helsinki), but in January 2000 they moved it completely to London. In January 2000 Munich and Stockholm offices were opened and same year in March company extended also to Oulu. At the same time Iobox acquired Futuron Wireless

Solutions in order to get research and development capacity. Futuron was specialized in XML and java based wireless software.

Terra Mobile, which is a joint venture 51% owned by Telefonica Moviles (a spanish operator) and

49% by Terra Networks, acquired 100% of Iobox in July 2000.

2.2 Terra Mobile

Telefonica Moviles and Terra Networks founded Terra Mobile in July 2000 with the aim of becoming the world’s leading mobile Internet portal. Terra Mobile will operate internationally in

Europe and in Latin America. The parent firms already hold the market leading position in those areas with Telefonica Moviles over 11 million subscribers in Spain and more than 23 million worldwide. Terra Networks is the leading provider of Internet access in the Spain and Portuguese speaking world. Telefonica Moviles is a wholly owned subsidiary of Telefonica S.A. and Terra

Networks is 67% owned by Telefonica S.A.

2.3 Business idea

Originally Iobox was trying to create pan-European brand, which provides strongly localized services to each country. The idea was to create an image that when people think of mobile they think of Iobox. The markets have been very interested in different mobile services and Iobox has been racing against the clock to be the first in market. Because of the new owner the idea has been changed a little bit. As Terra Mobile has a very strong position in the Spanish and Portuguese speaking markets in it quite obvious that they want Iobox to provide their services to those markets.

The negotiations are still underway and no official statement of the position of Iobox has not been

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Koskinen, Rouhola 2


21.2.2000 given. The btob business of Iobox has mainly been the development and selling of their wireless platform which enables a company to start offering different kinds of services to customers. The platform has thus in part been a “sales opener” to get more sales for the services developed by Iobox.

Iobox is of course taking care of their existing btob customer but acquisition of new customers is now Terra Mobile’s responsibility.

2.4 Operations (Locations)

Iobox has offices Finland (Oulu and Helsinki), Germany, Spain, Sweden and London (HQ). Iobox’

R&D activities are located in Spain, Oulu and Helsinki.

2.5 Core competencies

In the discussions with Iobox Helsinki office manager he mentioned three core competencies Iobox has.

2.5.1 Technology

Personnel of company are very technology oriented. The technological skills are very high and the proof of that is the wireless platform which is developed of regular components but the building of it lasts at least 18 months. Many competitors have said that they have similar platforms but none of them have them have it in use.

2.5.2 Understanding of business plans

When things have to be organized there has to be understanding of which business plan fits to certain occasions. The personnel of company come from different

2.5.3 Managing

All the at least vice president level managers have in minimum 10 year experience in working life.

That gives them enough preconditions to reach the targets set to them. The company is also very

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Koskinen, Rouhola 3


21.2.2000 young and the employees don’t have a common history. That kind of situation controls politicking which can be very damaging to the work environment.

3 Internal environment

3.1 Personnel

Iobox has 200 employees in five different countries, Finland, UK, Spain, Germany and Sweden.

Management Jari Ovaskainen and Henry Nilert are introduced in chapter 2.1. Iobox has one principle when they hire employees “class B people attract class C people to join company, that’s why Iobox hires only class A people.

3.2 Organization

Iobox has been growing very rapidly which means that organization is chancing constantly. In spring

2000 Iobox had les than 70 employees and now autumn 2000 they have 200 employees.

3.3 Finance

First round of finance was 3.1 million euros (January 1999). Financiers were SFK Finance, Eqvitec

Partners, Alto Berkeley Investments and Capman Capital Management.

Second round was 13 million euros (December 1999). Largest investor was Morgan Stanley Dean

Witter Capital Partners. Original investors Eqvitec Partners, SKF Finance and BancBoston Capital added their investment at same time.

Terra Mobile acquired Iobox in July 2000. Terra Mobile paid 230 million euros in cash. That time

Iobox had about 100 employees, which means that Terra Mobile paid more than 2.3 million euros per employee. Time when acquisition took place Iobox was only 19 months old, which means that

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21.2.2000

Iobox has gained value more than 12 million euros per month. In Iobox point of view couldn’t be better, right after sale whole technology sector valuation has gone down. Especially valuations of non-profitable companies have dropped dramatically.

3.4 Profitability

Iobox is not profitable. Venture capitalists have been financing company since Iobox founding. This is common way of doing business for Internet and mobile Internet companies. Normally firms rise from two to four rounds of finance from venture capitals, and change for money venture capitalists get share of the company. It had announced IPO plans just before acquisition took place. Due the

Internet companies market value fluctuation end of summer 2000, Iobox IPO wouldn’t have changes to succeed.

3.5 Reputation

Red Herring has chosen Iobox on, The Red Herring 100 50 private companies list, in June 1999

1

.

Only other Finnish company in this list was Nokia. This was quite a remarkable achievement for the company, which was only 10 months old.

3.6 Innovativeness

During whole existence of Iobox it has been very innovative company, in both technological side and service side. Iobox has been able to introduce new innovative services to attract customers. In technological side they have been able to develop truly scalable system, which can serve over one million customers.

1 Red Herring, The Red Herring 100 50 private companies, June 2000, http://www.redherring.com/about/release043000.html

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Koskinen, Rouhola 5


21.2.2000

3.7 Research and Development

Iobox R&D centers are located in Finland and Spain. In Finland Iobox have two R&D centers in

Oulu and in Helsinki.

4 External environment

4.1 General environment

In the changing global environment the firm must monitor five major forces: demographic, economic, political/legal, social/cultural and technological.

4.1.1 Demographic Segment

Iobox’s services are closely connected to mobile phones and for their part complement the phone.

Their possibilities depend because of that quite closely on the demand and global sales of the mobile phones. At the moment Iobox has in addition to Finnish services also localized sites in French and

Swedish and an English site for international customers. Services can be used by people of all ages and especially in Nordic countries the social status or education doesn’t effect to the use.

4.1.2 Economic Segment

In Nordic countries the prices of mobile phones and their services are relatively low. In Finland we have the highest mobile phone penetration in the world. These reasons make practically every person in Finland and in Sweden a possible customer for Iobox. In other countries the prices of phones are also quite low but the calls are more expensive than in Finland.

4.1.3 Political/Legal Segment

Finland has very differing telemarkets when comparing with the other EU countries; the competition is extremely free and we have many competing firms. This is only good thing for Iobox as its

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Koskinen, Rouhola 6


21.2.2000 services can be used despite which network the customer is using. In many other countries the markets are much more regulated and the customers don’t have many choices to choose from. There are currently no laws forbidding the technologies or services Iobox is using so the future looks bright.

4.1.4 Socio/Cultural Segment

The society in Nordic countries raise technology oriented children. The Internet is hype, the latest mobile phone model is hype and almost everything is someway connected with technology. The schools are teaching ADP and children learn to play games and surf in Internet at very young age.

Many kids have mobile phones even when they are first graders. H

4.1.5 Technological Segment

People in Scandinavia are very eager to buy every kind of new gadget so the markets for mobile phones and thus for services for them are very big. Also home of the firms as Nokia and Ericsson are here. The companies are visioning that in the future people will have more than one mobile phone.

The technology connecting the Internet and mobile phone is very interesting to service providers too.

The technological development of the mobile phones is very fast and Iobox can keep up the pace only by developing their services.

4.2 Industry environment

Growth

Mobile phone penetration has been going up very fast in all European countries, here in Finland we have exceeded 70% penetration rate and other Scandinavian countries are not far behind. In Finland penetration rate is expected to be over 100% in few years time. Internet penetration rate is far behind mobile phone penetration rate, which is one reason why mobile Internet companies are loaded with such a high expectations.

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21.2.2000

WAP enabled mobile phone penetration is far behind forecasts and it is possible that mass markets will never adopt WAP. Many mobile Internet firms who has been betting on WAP has faced problems because market for their technology is still small even in Scandinavian countries.

SMS message traffic in GSM networks has been growing a lot and it is expected to continue this rapid growth. We can see in figure 1. That in May 2000 total 8 billion SMS messages was send per month and by end of year there will be more than 12 billion send messages.

Figure 1. SMS growth

2

There are two reasons for this growth another is that there is a lot more value added services (e.g.

Iobox services) and another is subscriber base growth.

4.3 Competitors

4.3.1 Red Message

Red Message is Swedish Start-up Company founded in 1999. Red Message management: Frederic

Landahl is CEO, Steven Yurisich is CMO and Michael Wallenius is CTO. Red Message is WASP

Company, delivering different mobile internet services. Company has strong focus in Business-to-

Business market. They have presence in Sweden, UK, Germany, France and Italy. Red Message has

2 GSM Association, SMS Forecast May 2000 http://www.gsmworld.com/membership/graph_sms.html

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Koskinen, Rouhola 8


21.2.2000 completed two rounds of finance, and they have received total $23 million. Company has plans to have IPO in 2001, probably London. Red Message has 80 employees currently.

Red Message has wide range of clients, but most clients are one-way SMS clients. qxl.com and

Iobox announced agreement in spring 2000 in order to develop mobile interface to qxl’s auction site.

But today autumn 2000, qxl has simple SMS notification service, which is powered by Red Message.

If qxl’s acquisition over Rikardo works out qxl will be largest Internet auction site in Europe.

4.3.2 Myalert

Myalert is Spanish company, founded in May 1999. Founder and CEO of the company is Jorge

Mata. Myalert has offices in Spain, UK, France, Italy, Germany and US. Company is wireless/ mcommerce company and they claim to be leader in one-to-one alert-driven mobile commerce.

Myalert has completed two rounds of finance, they have raised total $50 million. Second round was

$45 million lead investors were Nomura International and Brokat. Myalert’s 2 nd

round was largest in

Spain’s Internet history. Myalert bought 23% stake of Future 121 (October 2000), and they have option to buy another 26%. Myalert monthly burn rate is $400 000 currently. Myalert has 90 employees. MyAlert offers many of the services typical of a mobile portal, including stock quotes and news updates delivered free to users' handsets.

4.3.3 Akumiitti

Akumiitti is Finnish start-up company founded 1993. They were in Internet business, but they changed their strategy to mobile Internet. Company has strong focus on mobile entertainment

(ringing tones and icons). Akumiitti owns 30% share of Wireless Entertainment Services. WES is content provider (ringing tones etc.).

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21.2.2000

Akumiitti has one product The Akumiitti Entertainment Service Center (ESC) enables the delivery of mobile entertainment content and services, facilitates easy deployment and supports the entire value chain from the entertainment industry to the mobile phone users. Akumiitti’s first round of finance was 20 million euros, TecCapital, Part.Com, EDB Ventures and Arctic Ventures were investors.

Akumiitti clients are DaimlerChrysler, Nokia, Sonera, StarMedia Mobile, Winbox, 123Internet,

NetCom and Mobyson.

4.3.4 2ndhead

2ndhead is part of SanomaWSOY Corporation. Company was founded in March 2000. Currently they operate only in Finnish market, they have plans to expand to other European countries.

Company has mobile portal and they have very similar service offering than Iobox. 2ndhead services are ringing tones, icons, news to mobile and mobile games.

4.3.5 Sonera ZED

Sonera Zed is mobile operator Sonera 100% owned subsidiary. Company produces services allowing consumers use Internet via their mobile phone. They say, “Company produces personalized wireless information services for consumers”.

CEO of company is Juha Varelius, COO Turkka Oksanen and Klaas Wagenaar is CFO. Sonera ZED has offices in UK, Finland and US.

Sonera Zed service concept is very similar to iobox’ concept; ringing tones, icons, email, news and sports results. They will launch Sonera Zed services in more than five countries by end of year 2000.

It is very obvious that countries will be same countries, which are main markets for Iobox. Sonera

Zed has over 700 000 monthly registered users at end of June 2000. Looks like Sonera Zed has really scalable platform, it might be that is has been tested with even higher traffic loads than Iobox services. Other companies have similar financial recourses; both are totally owned by mobile operators. So far Sonera Zed has entered to following markets: Finland, Germany, Netherlands,

Philippines, Singapore, Turkey and USA.

Our opinion is that Sonera Zed is closest competitor to Iobox.

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21.2.2000

4.4 Competitor conclusion chart

Figure 2 shows how we see competitive situation, closest and most serious competitor is Sonera Zed.

Sonera Zed iobox

Same markets

Myalert

Red Message

Markets

2ndhead

Akumiitti

Not on same market

Not close Service closeness Very close

Figure 2 competitor chart

4.5 Competitor conclusion

Until today WASP’s have faced very little competition, if any. Toughest competition has been in financial market, large number of start-ups has been looking for venture capital for their globalization and research and development. But situation is slowly changing for example in Finland companies like 2ndhead, Jippii, Sonera and Radiolinja has entered to ringing tone and icon business.

And other European markets will follow, Saunalahti’s Jippii has already presence in Switzerland,

Poland, UK, Norway, Holland, France, Estonia and Germany. So far companies haven’t been competing with price, growth of the market has taken care of it, but now companies like 2ndhead has started to sell ringing tones and icons with much lower price than Iobox. Of course Finnish market, where this competition has started plays a minor role in Iobox’es business, but still Iobox should be aware of it.

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21.2.2000

Now when Iobox is part of Terra Mobile, it might face internal competition other Terra Mobile subsidiaries will do same things. At the moment Iobox has clear technological advantage, but other

Terra Mobile subsidiaries might catch up surprisingly fast.

Conclusion is that toughest competition has been in venture capital market and Terra Mobile acquisition solved this problem. But competition is slowly rising in business-to-consumer market,

Iobox should be aware of it things like price erosion will take place in near future.

5 Services and customers

Iobox’ business to customer services can be divided to five different categories: mobile messaging, mobile fun, mobile manager, mobile news, and m-commerce. The business-to-business service has been mostly developing and selling their wireless platform, which partly complements their service provisioning as business-to-customer services, can be sold to customers who have bought the platform.

5.1 Mobile Messaging

Mobile messaging includes three different services: e-Mail, SMS messages and SMS chat.



With E-mail service the user gets a free email account and the company delivers users emails to his mobile/WAP phone.



With the SMS messaging service user can write SMS messages to a person or a group with the phone or a computer.



SMS Chat enables to keep contact with many persons at the same time using mobile phone or a computer.

5.2 Mobile fun

Mobile fun includes Iobox’ icons and ring tones and SMS postcards.



With icons the user can show pictures on his mobile. Iobox has a library where can be downloaded different icons or the user can draw one himself with company’s icon Designer and iconMaker.

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21.2.2000

 Ring tone service enables the user to download new ring tones from company’s library or create new ones on their toneComposer.



User can select pictures from the company’s library or create new pictures with postcardMaker and send them together with an SMS-message.

5.3 Mobile manager

Mobile manager includes contacts, bookmarks and calendar.

 Contacts keep user’s e-mail addresses and mobile phone numbers online. The user can set aliases and create groups to speed up and simplify sending messages from the mobile phone.

 User’s favorite websites can be saved at Iobox so user can access them no matter which computer he uses. Also WAP-links can be stored there for fast and easy mobile surfing with the mobile phone.

 Calendar can be used to organizing day with Iobox’ online calendar and keeping track of meetings, events and to-dos. Company will send reminders straight to user’s mobile phone.

5.4 Mobile news

Depending of the country the mobile news service has a different amount of news to choose from. In

Finland Iobox is delivering sports news, two different kinds of Formula 1 news, weather information, joke of the day and news from the Finnish National Hockey League to mobile phones.

5.5 m-commerce

The m-commerce service is a growing area. In the near future customers can buy different items through mobile phones. At the moment this is however impossible since the only partner company in

Finland Boxman, has been closed. There have been negotiations of several other partners though.

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21.2.2000

5.6 Customers

Iobox has currently about 2 million customers in four different countries: Finland, Sweden, UK and

Germany. The growth rate has been phenomenal. It took a year to get 1 million customers, 4 months to get 2 million customers and the three million mark is about to break in next few weeks. The customers can be easily divided to two different groups. Only 30% of all customers are active that is visiting the company’s web page more than once and really use the services. The rest are people who just register for curiosity or to get the free credits. This is real problem for the company. Another problem is the spamming meaning customers who exploit the weaknesses in these kinds of free credit systems by coding and using scripts which create instantly hundreds or even thousands of

“customers” all of which “give” their free credits to the person who used or wrote the script. Because of spamming Iobox has been forced to implement more effective security measures to avoid it. The new security system is based on icon or picture login, which is extremely hard to implement, by a piece of code.

On the other hand Iobox’ customers include the European operators and the different companies the operators have founded to act in the mobile business. As stated before Iobox no longer operates in the business-to-business field but it still has many companies it is willing to serve in that area too. Its biggest customers are Telia Finland and Sweden but the Terra Mobile deal has opened many new opportunities for it. The smaller customers include operators from Germany, Portugal and Poland.

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21.2.2000

6 Value chain m-commerce value chain

Transport

- communication between mobile users and application providers

Mobile Operators

Basic Enabling Transaction Presentation

Services Support Services

- hosting, -mobile -protocols data backup and systems integration

ICL payment

Sonera Smart Trust HTML

Phone.com

WML

Light HTML

Personalization User

support

-not same content

Applications

than in Internet -new services:

Content

Aggregators

and operators address, device…

Figure 1. m-commerce value chain

3

Hotmail, Airflash

Iobox

In figure 1 is m-commerce value chain. Final link in value chain is content aggregator link and iobox is in this link. This function is particularly important for m-commerce because mobile phones have smaller screens and limited input mechanisms (no mouse, small key pad).

3 McKinsey Quarterly: M-commerce An operator’s manual, 2000 number 3

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21.2.2000

7 Delivery channels

The services are provided to end users via localized web sites. Iobox is founding country organizations to the most attractive markets. The use of existing services in Terra Mobiles web sites in Latin America and Spain is not decided yet but it is very likely.

8 Earning logic

The earning logic of Iobox is based on credits. When a customer registrants he gets 30 free credits (1 credit=0,69 FIM). With the credits the customer can buy services. The credits are used as a carrot to attract new customers. If the customer wants more credits he has to pay them with credit card, collect on delivery or with Internet bank access. In short, customers buy special “money” with which they can buy services.

There are few limitations in this kind of credit system.



The most promising customers being young people aged 10-15 are not able to get credit card or Internet bank access.



The Internet bank access is very popular in Nordic countries but in other European countries people are not used to them.



Free credits attract new customers but always a part of the customers will only use the free credits. The amount of active customers in Iobox is about 30%.

9 Analysis

9.1 SWOT

Strengths



Technological know how

 Terra has strong position in Spanish speaking markets, terra’s strategy suits Iobox well



Pioneers with their wireless platform



standard components but not easy to build

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21.2.2000



Personnel pretty young, management experienced



Financial resources

 Terra’s global brand

Weaknesses



Business not profitable at the moment



Top management in Spain, other executives in Finland



Not independent anymore



Only 30% of customers are active



How to maintain Iobox’ position in Terra Mobile



Dependent on BtoB business (BtoC is more profitable)



Ringing tones and icons work only in Nokia mobile phones



You can make your own ringing tones and icons with a certain software



Most of the services become obsolete in a year or two because the development in technology

Opportunities



The current trend in mobile communications continues



Pioneers, a good chance to become global wireless portal

 “Old” services can be offered to not so developed markets where Terra has already a position and new services can be developed to advanced markets like Finland and Sweden



SMS services remain as a complementary services even till the GPRS or UMTS era

Threats

 the phones become so “intelligent” that they have all the services/applications already when bought



Competition forces prices too low to make profitable business



Free riders find a brilliant way to cheat to get credits

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21.2.2000



The hype about mobile business and internet in phones stops



When true mobility with internet is achieved all the services available now are available in mobile phones



All that Terra wanted was the technological platform

 Terra’s focus to Spanish speaking markets can diminish Iobox’ technological and competitive advantage

Strengths

Technological know how is very high in Iobox. Employees’ skill level is adequate to develop complex services for mobile phones. With the help of Terra Iobox can enter pretty easily to many

Spanish-speaking markets and also they receive the Terra brand recognition and image. Iobox has been a pioneer with their wireless platform: many rivals have announced that they have similar platform but the implementation of such a platform takes at least 18 months. Personnel of company is quite young but enthusiastic and on the other hand all management level persons have in minimum

10 years experience in business. Like described in the finance chapter before the financial situation of Iobox is very good and the future looks bright.

Weaknesses

The biggest problem in Iobox of course is the profitability or in this case the lack of it. While Terra

Mobile is a strength for Iobox it is also a weakness: the top management is in Spain and the big decisions are made there. Iobox is not anymore independent but it belongs to a huge telecom operator

Telefonica, which is the world leader in the Spanish and Portuguese speaking countries. Another quite concerning issue for Iobox is the customer base, of which only 30% is active that is using the services and visiting the web site more than once. A big challenge for Iobox is try to maintain their position as a part of a new company. Iobox is currently very dependent on the service business, selling different kind of services i.e. icons to customers although the business-to-business is considered to be more profitable. Ringing tones and icons work only in Nokia mobile phones which despite their leading position in markets are not the only brand and thus a certain part of mobile

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21.2.2000 phone owners can not use all of the services provided by Iobox. Everyone can make their own ringing tones and icons with certain software, which is even provided with certain phones. The enormous speed of technology development makes most of the services obsolete in a year or two as the mobile phones become more like personal digital assistants, which include calendars, games and email just to mention few features.

Opportunities

The company has been a kind of pioneer in its business and the time frame is there so it has a true possibility to become a global wireless portal. The current trend in wireless communications of course has to continue in order that to be even close to happening. The current services could be offered to the less advanced markets where Terra mobile already has a strong position and a the same time more sophisticated services could be developed to for example Nordic markets where customers require very advanced services. If SMS services remain as a complementary services even till the

GPRS or UMTS era Iobox has a good chance to become important player on the market even if

Terra Mobile doesn’t allow it to develop services for the latest technology.

Threats

The development of mobile phones may make services useless if the phones already have all the necessary services in them. The people after the free credits are a clear danger for Iobox’ business. If they find a way to “cheat” the registration software it could mean major losses for Iobox. Of course competition is always a threat but also the trend were the mobile business is going could change. If people lose interest in it, there is no money in it. The technology can be threat too. If someone makes a revolutionary invention either in technology or in services Iobox could lose the game. We consider the Terra Mobile deal as a threat too because it could turn out that all that Terra wanted was the wireless platform and after it got it Iobox is no longer needed. Terra’s focus to Spanish and

Portuguese speaking markets can diminish Iobox’ competitive advantage.

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21.2.2000

10 Scenario planning

In this chapter we develop few scenarios for future strategy, then we evaluate scenarios and at last we select most promising one.

10.1 Scenario building

1.

Scenario: Test Bed

This is basically Iobox’es current strategy, they use Finnish market as a test bed for their new service development. Because they have large customer base they have been able to test how scalable their technology is. This strategy has been working well so far.

2.

GPRS

Second possible scenario is to bet heavily to GPRS. This new technology will make big difference to GSM (more bandwidth, always on…). Iobox has strong financial backing (Terra

Mobile); it allows company to have some more non-profitable years.

Idea is that Iobox develops service package ready, and when mass market adopts new technology, Iobox has services ready. Sonera has announced to open its GPRS network by end of year 2000, so mass market might be only one to two years away.

3.

3G

Iobox will concentrate all its R&D effort to third generation network (UMTS) applications.

Normally VC’s would not finance companies, which has break-even point (point when the company turns profitable) in so far future. Now with Terra Mobile backing Iobox has possibility to stay unprofitable as long as it takes third generation adaptation.

10.2 Scenario selection

Our opinion is that scenario 1 is best scenario for Iobox. This strategy has worked well earlier and we can’t see why it won’t work in future. It is also most likely that Terra mobile doesn’t want to wait

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21.2.2000 until next generation networks will be adopted by mass markets, we have to remember that here in

Scandinavia we have 1 to 2 year lead over other European countries, mass market here in one to two years time means mass market in three to four years in Spain.

11 Recommendations for action

11.1 Customer lock-in

At the moment Iobox has about 2 million customers but still it has been only losing money. The company has to think ways to turn that kind of mass into a positive cash flow. The development of new and improved services is the essential part of customer lock-in. Naturally the services have to be state-of-the-art and always a step ahead of competitors in order to get customers to use them. Iobox could also think of some kind of volume discounts or more free credits to customers who really use their services.

In the btob side they could consider similar tactic as one of their competitors, making their platform free of charge. This could improve the sales of their services and make the Terra brand stronger.

11.2 Improve earning logic

Our opinion is that Iobox should try to move from credit based charging to direct operator independent charging. This improvement would make their services available to everyone and make the use of their services more simpler. Now customers must first buy credits to buy services, which is too many steps to many customers. The challenge in direct charging is of course the operator contracts which maybe very difficult to get.

11.3 Don’t forget Scandinavia

Although Terra Mobiles biggest interest is in the Spanish and Portuguese speaking markets Iobox should try to use their position in the Nordic countries also. We here have a unique and very advanced markets, which could be used as a testing area for the most sophisticated services. They could be introduced to the other markets much later but tested and developed in Nordic countries.

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21.2.2000

11.4 Real challenge is to keep their position

The biggest challenge for Iobox is their position as a part of the new company. The name Iobox will disappear but the company must make sure that they work doesn’t by doing excellent project and continually keeping on the sharpest edge of the technology.

12 Conclusion

In the other hand Terra Mobile acquisition is good, but at same time Iobox lost it’s independency.

There is a great danger that Iobox might end up being just the R&D department for Terra Mobile. In this case Iobox is most likely to lose its position in edge of mobile Internet technology. At any price

Iobox should keep it’s own existing mobile portals, to keep in touch with end user.

Acquisition solved one possible problem; possibility of running out of financial resources. Terra

Mobile backing means that Iobox has financial resources to choose any of scenarios presented in chapter 10. Unfortunately Iobox is not in position where it can choose freely between these scenarios. In worst-case Iobox engineers will be busy to implementing their existing technology in different Spanish speaking countries. And meanwhile other rival companies will catch up Iobox’s technological advantage.

As a result of our research we are quite confident that Iobox won’t be in Red Herring top 100 privately owned companies list in future.

References:

[1] GSM Association, SMS Forecast May 2000 http://www.gsmworld.com/membership/graph_sms.html

[2] McKinsey Quarterly: M-commerce An operator’s manual, 2000 number 3

[3] Red Herring, The Red Herring 100 50 private companies, June 2000, http://www.redherring.com/about/release043000.html

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3 Internal environment

Petrus Koskinen

Kari Rouhola

48598T

50461U

Summary

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3 Internal environment

Petrus Koskinen

Kari Rouhola

48598T

50461U

Summary

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